RB Global Inc. (formerly Ritchie Bros. Auctioneers Incorporated) — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts are in U.S. dollars unless noted. The company operates an omnichannel marketplace for used commercial assets, with Auctions & Marketplaces as its reportable segment and financing, software, data and other services in its other activities.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $484.5m (+22%) | $396.4m | $878.5m (+21%) | $727.9m |
| Operating income | $91.9m (+3%) | $89.5m | $324.7m (+142%) | $134.0m |
| Net income attributable to stockholders | $53.4m (-12%) | $60.7m | $231.5m (+160%) | $88.9m |
| Diluted EPS | $0.48 (-13%) | $0.55 | $2.07 (+159%) | $0.80 |
| Cash from operating activities | Six-month measure: $198.0m | Prior-year six-month measure: $211.4m |
- Q2 service revenue rose 13% to $286.5m; inventory sales revenue rose 38% to $198.0m. Total Gross Transaction Value (GTV), an operating measure and not revenue, increased 10% to $1.68bn (13% excluding foreign exchange impact).
- Q2 GAAP operating margin was 19.0%, versus 22.6% a year earlier. Management reported adjusted operating income of $119.6m, up 12%, with a 24.7% adjusted margin versus 27.0%. Non-GAAP adjusted net income was $83.1m and adjusted diluted EPS was $0.74, up 11% and 10%, respectively.
- Q2 SG&A increased 32% to $144.3m, reflecting higher incentive and share-based compensation, headcount, technology, travel, marketing and professional costs, including inflationary pressures. Interest expense more than doubled to $18.5m.
- First-half operating income and net income benefited materially from the $169.1m gain on the Bolton property sale-and-leaseback. Excluding the gain, management said first-half operating income increased 16%.
- First-half operating cash flow declined 6%. Investing cash flow was positive $140.3m, principally due to approximately $165m net proceeds from the Bolton sale. Financing cash outflow was $1.16bn, chiefly reflecting repayment of the 2021 Notes.
Balance sheet and liquidity
- At June 30, cash and cash equivalents were $367.3m and restricted cash was $164.4m, for total cash, cash equivalents and restricted cash of $531.7m. Restricted cash fell substantially after the escrowed 2021 Notes were redeemed.
- Total debt was $653.0m, down from $1.744bn at December 31, 2021. The company redeemed the $600m U.S.-dollar and $425m Canadian-dollar 2021 Notes on May 4, 2022, paying approximately $931m including accrued interest; Q2 interest expense included a $4.8m redemption loss and related costs.
- Unused committed revolving credit capacity was $683.5m, available through September 2026 subject to covenants. The company reported compliance with all applicable covenants. Its non-GAAP adjusted net debt was $285.7m and adjusted net debt/adjusted EBITDA was 0.7x on a trailing 12-month basis.
- Current assets were $996.8m and current liabilities were $792.8m. Auction proceeds payable, a significant operating liability, was $493.7m.
Material developments, outlook and risks
- The proposed Euro Auctions acquisition was discontinued after the company elected to end the U.K. Competition and Markets Authority Phase 2 review; the purchase agreement terminated June 28, 2022. Related notes were redeemed and deal-contingent currency contracts terminated.
- The Bolton, Ontario property sale-and-leaseback generated approximately $165m net proceeds and a $169.1m gain. The company continues operating at the site under lease while it develops a replacement property in Amaranth, Ontario, expected to take two to three years.
- Management cited strong used-equipment values and buyer demand, but lower lot counts and tight equipment supply. Higher buyer fee rates, RB Financial Services growth and the SmartEquip acquisition supported revenue. The business is seasonal, typically strongest in the second and fourth quarters.
- No quantified earnings or revenue guidance is provided in the filing. Management said existing cash, operating cash flow and credit availability should fund current operations and planned growth; cash needs include the Amaranth site, inventory, dividends, leases and debt service.
- Risks discussed include inflation, fuel and freight costs, supply-chain disruption, foreign-exchange headwinds and uncertainty from the Russia-Ukraine conflict. The company has no material operations in Russia or Ukraine but cannot estimate the conflict’s future effects. COVID-related transport constraints had eased in some regions but remained in parts of Asia.
- The CRA is auditing the company’s 2014, 2015, 2017 and 2018 tax years; an adverse outcome could result in additional taxes, penalties and interest. The company also reported $30.8m of assets under consignor guarantee contracts, before estimated auction proceeds, and ongoing inventory purchase commitments under U.S. government contracts. Management does not expect ordinary-course legal claims to have a material effect.
- Eric Jacobs became CFO effective June 6, 2022. The board declared a $0.27-per-share quarterly dividend after quarter-end, payable September 14, 2022.
Important facts for investors to verify
- Reconcile the filing’s inconsistent six-month adjusted EBITDA figures: the detailed reconciliation reports $241.1m, up 23%, while the financial overview table reports $192.6m, down 2%.
- Assess earnings excluding the Bolton sale gain and other adjustments; first-half GAAP income growth is not solely operating growth.
- Review cash conversion and working-capital movements, especially receivables, inventory, auction proceeds payable and the timing of auction settlements.
- Monitor debt service, facility covenant headroom, and funding needs for the Amaranth replacement site after the debt reduction and the start of mandatory term-loan amortization in Q3.
- Track equipment supply, lot volumes, fee-rate effects, foreign exchange, transportation costs and the remaining guarantee and government inventory commitments.